Example: Extra Costs for Co-Products and By-Products
Extra costs are not associated with a particular step of the process.
Therefore, feature cost percentages are not used for distributing the extra costs. Instead, the system:
Determines the total of the net-added B1 through C4 costs for all the co-products and by-products.
Calculates the percentage of this total that each co-product or by-product represents.
Uses this percentage to allocate the extra costs.
In this simulated rollup of cost components for a process, the cost of extra cost X3 (Outbound Freight) is included for the amount of the process:
Cost Type |
Net Added |
Total |
|---|---|---|
A1 Material |
NA |
40.00 |
B1 Direct Labor |
20.00 |
20.00 |
B2 Setup Labor |
40.00 |
40.00 |
B3 Machine Run |
20.00 |
20.00 |
C1 Machine Variable |
20.00 |
20.00 |
C2 Machine Fixed Overhead |
20.00 |
20.00 |
C3 Labor Variable |
60.00 |
60.00 |
C4 Labor Fixed Overhead |
60.00 |
60.00 |
X# Freight Out |
40.00 |
NA |
Simulated, Frozen, and Cost Ledger are each 280.00.
When you run a cost rollup program to include the X3 cost type, the program determines the percentage that each co-product and by-product contributes to the total B1 through C4 costs, as illustrated by this table:
Cost Type |
BY 1 |
BY 2 |
CO 1 |
CO 2 |
Total |
|---|---|---|---|---|---|
B1 |
NA |
10.00 |
5.00 |
5.00 |
20.00 |
B2 |
10.00 |
10.00 |
10.00 |
10.00 |
40.00 |
B3 |
10.00 |
NA |
5.00 |
5.00 |
20.00 |
C1 |
10.00 |
NA |
5.00 |
5.00 |
20.00 |
C2 |
10.00 |
NA |
5.00 |
5.00 |
20.00 |
C3 |
10.00 |
20.00 |
15.00 |
15.00 |
60.00 |
C4 |
10.00 |
20.00 |
15.00 |
15.00 |
60.00 |
Totals |
60.00 |
60.00 |
60.00 |
60.00 |
240.00 |
Percent of Total |
25 percent |
25 percent |
25 percent |
25 percent |
100 percent |
Because all four co-products and by-products have the same total costs, each is allocated 25 percent of the extra cost X3 (Freight Out) in the rollup.
When you review the cost for this item after the rollup, the simulated cost appears as this table indicates:
Cost Type |
Net Added |
Total |
|---|---|---|
A1 Material |
NA |
10.00 |
B1 Direct Labor |
5.00 |
5.00 |
B2 Setup Labor |
10.00 |
10.00 |
B3 Machine Run |
5.00 |
5.00 |
C1 Machine Variable |
5.00 |
5.00 |
C2 Machine Fixed Overhead |
5.00 |
5.00 |
C3 Labor Variable |
15.00 |
15.00 |
C4 Labor Fixed Overhead |
15.00 |
15.00 |
X# Freight Out |
10.00 |
10.00 |
Simulated Cost equals 80; Frozen and Cost Ledger each equals 70.00